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  1. 1. Lessons Learned in Accounting and Financial Transparency Reforms: A Regional Perspective Henri Fortin
  2. 2. Background – World Bank’s engagement in strengthening corporate financial reporting <ul><li>Improving accounting and accountability is part of the development agenda </li></ul><ul><ul><li>Growth agenda: business climate conducive to investment; better access to finance; economic integration with major trading partners </li></ul></ul><ul><ul><li>Financial stability </li></ul></ul><ul><ul><li>Governance agenda: higher accountability of state-owned enterprises; improved system of corporate tax collection </li></ul></ul><ul><li>ROSC A&A program since 2001 </li></ul>
  3. 3. ROSC: Accounting & Auditing <ul><li>Corporate Governance </li></ul><ul><li>Accounting </li></ul><ul><li>Auditing </li></ul><ul><li>Insolvency and Creditor Rights </li></ul><ul><li>Data Transparency </li></ul><ul><li>Fiscal Transparency </li></ul><ul><li>Monetary & Financial Policy Transparency </li></ul><ul><li>Banking Supervision </li></ul><ul><li>Securities Market Regulation </li></ul><ul><li>Insurance Supervision </li></ul><ul><li>Payment Systems </li></ul><ul><li>Anti-Money Laundering - CFT </li></ul>A&A Strong A&A and financial sector regulation/ supervision are mutually supportive Financial sector standards Transparency standards Market integrity standards AA-CG interrelated
  4. 4. <ul><li>Initiation </li></ul><ul><li>Consultation with the authorities </li></ul><ul><li>Tailoring the methodology to the country </li></ul>ROSC Accounting & Auditing Overall approach, main activities Initiation Diagnostic ROSC Report Country Action Plan Implementation <ul><li>Diagnostic </li></ul><ul><li>Diagnostic Tool, perception survey, academia survey </li></ul><ul><li>Due diligence, review of financial statements </li></ul><ul><li>ROSC Report </li></ul><ul><li>Discussed with authorities, stakeholders before its finalization </li></ul><ul><li>Widely disseminated in the country (normally published) </li></ul><ul><li>Country Action Plan </li></ul><ul><li>WB role is to assist in drawing the action plan. The authorities are to prepare it </li></ul>
  5. 5. <ul><li>Measures to improve corporate financial reporting included in WB operations </li></ul><ul><ul><li>Technical assistance loans/credits </li></ul></ul><ul><ul><li>Development policy lending </li></ul></ul><ul><li>Grants to support institutional strengthening and implementation of new regulations </li></ul><ul><ul><li>Institutional Development Fund: supreme audit institutions or accounting professional bodies </li></ul></ul><ul><ul><li>FIRST Initiative, DFID “LAMIT”, etc. </li></ul></ul><ul><li>Linkage with MIF-FOMIN (more information to come) </li></ul>Implementation phase – WB’s engagement
  6. 6. ROSC A&A Latin America and the Caribbean X : report published
  7. 7. What are some of the lessons learned?
  8. 8. Solving the A&A puzzle A roadmap for reform and capacity development <ul><li>Corporate financial reporting is a puzzle of </li></ul><ul><li>several pieces: </li></ul>Enforcement Education & Training A&A profession Laws, regulations and standards <ul><li>Reforms need to be gradual and properly sequenced </li></ul><ul><li>Capacity development activities need to be included </li></ul><ul><li>Improved A&A practices require a holistic approach – several inter-related issues need to be addressed </li></ul>
  9. 9. Collaborative approaches, Outreach, Stakeholder involvement <ul><li>Reforms should be based on collaborative arrangements between stakeholders </li></ul><ul><li>Synergies need to be drawn from closer collaboration (e.g. work of external auditors and supervision work of financial sector regulators) </li></ul>Government Tax authorities Company registrar Financial sector supervisor(s) Commercial banks Capital markets World Bank Other partners Accounting Oversight body Corporate sector (enterprises) Accounting- Audit profession Academia Reporting Monitoring Educating
  10. 10. Recognizing varying levels of public accountability in the corporate sector <ul><li>SMEs are often subjected to stringent standards </li></ul><ul><li>Conversely very large companies may be subject to relatively lenient requirements </li></ul>Public Interest Entities SMEs Micro-enterprises Listed companies, large SOEs, banks, insurance companies, etc. Large private non-listed companies, and other SOEs Full IFRS L ocal GAAP (or s implified IFRS) Limited or no F/R obligations Degree of corporate accountability Category of company Financial reporting standards Simplified IFRS (or local GAAP) Laws and regulations should be adapted to reflect these varying degrees of accountability
  11. 11. A&A Standards The “Adopt v. Adapt” dilemma (1/2) <ul><li>Advantages of adopting IFRS (ISA) </li></ul><ul><ul><li>Stronger recognition than local GAAP (GAAS) </li></ul></ul><ul><ul><li>Standard-setter’s efforts can be focused on dissemination, training, etc. </li></ul></ul><ul><li>Advantages of adapting IFRS (ISA) </li></ul><ul><ul><li>Country “idiosyncrasies” better reflected </li></ul></ul><ul><ul><li>More country ownership </li></ul></ul><ul><ul><li>IFRS (ISA) too complex for the country (?) </li></ul></ul>
  12. 12. A&A Standards The “Adopt v. Adapt” dilemma (2/2) <ul><li>Recommended approach for accounting standards </li></ul><ul><ul><li>For public interest entities </li></ul></ul><ul><ul><ul><li>Set IFRS adoption as ultimate objective </li></ul></ul></ul><ul><ul><ul><li>Establish procedures for reviewing draft IFRSs </li></ul></ul></ul><ul><ul><ul><li>Design plan for an orderly transition </li></ul></ul></ul><ul><ul><ul><li>Provide for a sufficient transition period </li></ul></ul></ul><ul><ul><li>For SMEs </li></ul></ul><ul><ul><ul><li>Consider adopting SME IFRS </li></ul></ul></ul><ul><ul><ul><li>Alternative: improve/simplify existing GAAP </li></ul></ul></ul><ul><li>Auditing standards: ISA adoption </li></ul>
  13. 13. Regional cooperation <ul><li>Some achievements to date, but impact limited </li></ul><ul><ul><li>Consultation among financial sector regulators </li></ul></ul><ul><ul><li>Accounting profession: regional seminars, contacts, exchange of views </li></ul></ul><ul><li>Need for stronger cooperation at regional level </li></ul><ul><ul><li>Translations of international standards in Spanish </li></ul></ul><ul><ul><li>Comments on exposure drafts </li></ul></ul><ul><ul><li>Common arrangements for regulating of the audit function </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><li>LAC can also learn from other Regions </li></ul>
  14. 14. Further information <ul><li>www.worldbank.org/crecer </li></ul><ul><li>www.worldbank.org/ifa/rosc_aa.html </li></ul>